Policy Provisions and Riders Flashcards

An insured individual commits suicide 2.5 years after their life insurance policy's effective date. Which policy provision will most likely determine whether the death benefit is paid to the beneficiary?

Answer: Suicide Clause

The Suicide Clause in most Canadian life insurance policies specifies a period, typically two years, during which if the insured dies by suicide, the death benefit will not be paid. Since the death occurred after this two-year period, the clause would allow for the death benefit to be paid. The incontestability clause deals with misrepresentations on the application, the grace period relates to missed premium payments, and the reinstatement clause applies to lapsed policies.

Joanne purchased a life insurance policy and, due to a temporary job loss, missed a premium payment. Her policy includes a standard provision that prevents the policy from immediately lapsing. If she dies during this period, the death benefit will still be paid, less the overdue premium. What is this provision called?

Answer: Grace Period Provision

The Grace Period Provision allows the policyholder an extra amount of time, typically 30 or 31 days, to pay a premium after its due date without the policy lapsing. If the insured dies during this period, the death benefit is payable, with the missed premium deducted. The other options are incorrect; Reinstatement applies after a policy has already lapsed, Nonforfeiture Options deal with the use of cash value if a policy is surrendered, and an Automatic Premium Loan is a specific feature that uses the policy's cash value to pay premiums.

Which of the following riders would allow a policyowner to purchase additional life insurance coverage at specified future dates or life events without needing to provide evidence of insurability?

Answer: Guaranteed Insurability Rider

The Guaranteed Insurability Rider (also known as the Guaranteed Insurability Option) gives the policyowner the right to purchase additional amounts of insurance at specified future times (e.g., every three or five years, or upon marriage or childbirth) without having to prove their health status. The Waiver of Premium Rider waives premiums during disability, the Accidental Death Benefit Rider pays an extra benefit for death by accident, and the Critical Illness Rider pays a lump sum upon diagnosis of a covered illness.

Frank took out a life insurance policy but failed to mention a significant heart condition on his application. He passes away from a car accident 18 months after the policy is issued. The insurance company investigates and discovers the misrepresentation. What is the most likely outcome?

Answer: The claim will be denied, and the premiums paid will be refunded to the beneficiary.

This scenario falls within the standard two-year contestability period in Canada. During this time, the insurer has the right to investigate and contest the policy based on material misrepresentations in the application, even if the cause of death is unrelated to the undisclosed condition. The usual outcome for a material misrepresentation discovered during the contestability period is to void the policy, deny the claim, and refund the premiums paid.

A policyowner adds a rider to her life insurance policy that will pay for the premiums if she becomes totally disabled and unable to work. This feature ensures her life insurance coverage continues despite her inability to pay. What is this rider called?

Answer: Waiver of Premium Rider

The Waiver of Premium Rider is specifically designed to cover the cost of life insurance premiums if the insured becomes totally disabled according to the policy's definition. This keeps the policy in force. A Payor Benefit Rider is similar but applies to juvenile policies, waiving premiums if the person paying for the policy (usually a parent) dies or becomes disabled. A Disability Income Rider provides a separate stream of income upon disability, and an Accelerated Death Benefit allows early access to the death benefit for a terminal illness.

Which of the following provisions gives a policyholder the right to restore a lapsed policy to its active status, typically by paying back premiums plus interest and providing evidence of insurability?

Answer: Reinstatement Clause

The Reinstatement Clause allows the owner of a lapsed policy to put it back in force, subject to certain conditions like paying overdue premiums with interest and proving continued insurability. This is different from the Grace Period, which is a brief period after a missed payment before the policy lapses. The Incontestability Clause relates to misstatements, and the Free Look Provision allows a new policyholder to cancel the policy for a full refund within a specified timeframe.